Results

2Q13 net profit was flat yoy at RM107m, while 1H net profit of RM318m made up 61% and 58% of HLIB and consensus estimates respectively.

Deviations

Due to stronger than expected recognition of land sales in 1Q amounting to RM400m; no land sales was recognised in 2Q.

Dividends

None

Highlights

Earnings commentary. Net profit was down 49% qoq, due to RM400m Puteri Harbour land sales booked in 1Q. Excluding land sales, core earnings rose 245% qoq to RM107m, a healthy sign that progress billings have reverted to normalised levels.

More land sales to be booked in this year, from the RM180m land disposal which took place in April. We also understand that the land sales pertaining to Ascendas (RM70m) and Motorsports City are likely to only be booked in 2014, pending various condition precedents.

Nusajaya continues to dominate, accounting for RM1.3bn of the overall RM1.7bn sales achieved in 1H. This places UEMS well on track to achieve its RM3.0bn sales target for 2013.

RM3.2bn launches scheduled for 2H; key projects include CS-1 @ Puteri Harbour (RM1.4bn GDV) and MK22 @ Mont Kiara (RM866m GDV). This will be a key point to closely look out for, as it will make UEMS highly sensitive to any downturn in property demand.

Healthy earnings visibility, with RM3.27bn unbilled sales amounting to 1.7x FY12 revenue.

Risks

Nusajaya fails to achieve critical mass; failure to achieve RM3.0bn sales target; high-beta stock.

Forecasts

FY13E net profit raised by 21% to factor in additional land sales profits in 2H.

Rating

HOLD

Positives: highly liquid proxy to property sector; large war-chest for landbank acquisitions; rich in newsflow.

Negatives: Share price is highly news-driven; vulnerable to external slowdown; highest P/E multiple in the sector (>2x sector average).

Valuation

While UEMS enjoys robust unbilled sales, the outlook is somewhat clouded by macro and sector headwinds, especially in light of its ambitious RM3.2bn launch pipeline for 2H. We therefore raise discount to RNAV from 20% to 40% and trim TP from RM4.04 to RM2.43, and downgrade our recommendation to HOLD.

Source:Hong Leong Investment Bank Research - 30 Aug 2013